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Bargaining over Monetary Policy and Optimal Committee Composition in a Currency Union

Author

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  • Yuta Saito

    (Sophia University)

Abstract

Drawing on the Barro-Gordon framework, this paper investigates the design of the monetary policy committee in a currency union which implements the optimal time-consistent policy. The monetary policy is determined through Nash bargaining between member countries, where the outside options consist of non-cooperation within the union. It is shown that the member which experiences a higher output should have a greater bargaining power to reduce the inflationary bias. We also found that the richer member's optimal bargaining power, which induces the equilibrium policy time-consistent, is U-shaped with respect to the heterogeneity in the output shock.

Suggested Citation

  • Yuta Saito, 2018. "Bargaining over Monetary Policy and Optimal Committee Composition in a Currency Union," Economics Bulletin, AccessEcon, vol. 38(4), pages 1986-1996.
    • Handle: RePEc:ebl:ecbull:eb-18-00675
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2018/Volume38/EB-18-V38-I4-P182.pdf
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    References listed on IDEAS

    as
    1. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
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    3. Corinne Aaron-Cureau & Hubert Kempf, 2006. "Bargaining over monetary policy in a monetary union and the case for appointing an independent central banker," Oxford Economic Papers, Oxford University Press, vol. 58(1), pages 1-27, January.
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    5. Etienne Farvaque & Norimichi Matsueda, 2009. "Monetary Unions and External Shocks," Economics Bulletin, AccessEcon, vol. 29(2), pages 1483-1491.
    6. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-167, March.
    7. von Hagen, Jurgen & Suppel, Ralph, 1994. "Central bank constitutions for federal monetary unions," European Economic Review, Elsevier, vol. 38(3-4), pages 774-782, April.
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    Cited by:

    1. Yuta Saito, 2022. "A Note on Time Inconsistency and Endogenous Exits from a Currency Union," Games, MDPI, vol. 13(2), pages 1-8, February.
    2. Saito, Yuta, 2020. "A note on exit and inflation bias in a currency union," MPRA Paper 102717, University Library of Munich, Germany.

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    More about this item

    Keywords

    Inflationary Bias; Time-Inconsistency; Barro-Gordon; Monetary Union; Nash Bargaining;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F5 - International Economics - - International Relations, National Security, and International Political Economy

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